This document provides an overview of money laundering and combating the financing of terrorism. It discusses what money laundering is, the stages of money laundering (placement, layering, integration), and how it works. It also discusses terrorist financing. International efforts to combat money laundering and terrorist financing through organizations like the UN, FATF, and Egmont Group are overviewed. The roles and functions of India's Financial Intelligence Unit (FIU-IND) are described. The document also outlines India's Prevention of Money Laundering Act (PMLA) and its provisions, including scheduled offenses, punishments, and authorities for enforcement. Obligations of banks and financial institutions under PMLA around client identification,

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Anti Money Laundering /
Combating Financing of Terrorism
An overview on Money laundering and
how to identify the suspicious
transactions
By Girish Iyer
AML Cell IDBI Bank

3. Topics
Anti Money Laundering and
The Acme Corporation Combating Financing of
supplies products and Terrorism-International
services to people world- Scenario and Indian Response
wide. Role and Function of FIU-IND
This presentation provides Suspicious Transactions
an overview of our financial Reporting Under PMLA
performance. Implementing AML/CFT System
Unless marked as Company Identifying Suspicious
Confidential, all information Transactions
has been made public. Videos

4. What is Money Laundering (ML)
The criminals who generate these funds need to bring them into
the legitimate financial system
Every year, huge amount of funds are generated from illegal
activities. These funds are mostly in the form of cash
Money Laundering is the process by which illegal funds and
assets are converted into legitimate funds and assets
Mr. A is a drug trafficker who has a drug-trading business with a daily turnover of
$100,000 in cash. One day Mr. A took $120,000 to a casino and opened an account.
He stayed several days without gambling. On leaving the casino he withdrew his
money in cheques payable to third parties, which were then deposited in a securities
firm. The money was later withdrawn and invested in a number of legitimate
grocery shops owned by the trafficker
•Over $1.5 trillion of illegal funds are laundered each year

5. Stages of Money
Laundering
Money Laundering is the process by which illegal
funds and assets are converted into legitimate funds
and assets.
Investments
Purchases
Placement Layering Integration
All money laundering transactions need not go through layering
process

6. Placement
Illicit funds are separated from their illegal source
It involves the initial injection of the illegal funds into the financial
system
The launderer could deposit the cash into a regulated financial institution
such as a bank or securities company.

7. Layering
Creating multiple layers of transactions that further separate the funds
from their illegal source
The purpose of this stage is to make it more difficult to trace these funds
to the illegal source
The launderer may buy or sell securities or wire the funds across the
world through various accounts held in different banks, probably by
several shell companies

8. Integration
Involves reintroducing the illegal funds into the legitimate economy
so that the funds appear as clean
The purpose of the integration of the funds is to allow the criminal
to use the funds without raising suspicion that might trigger
investigation
The launderer may set up a web of front companies with fictitious import
/export businesses and use false invoicing and fictitious transactions to
integrate the funds as normal earnings from trade

9. How Money Laundering Works

10. Terrorist Financing
• Terrorist Financing means providing financial support to
terrorists or terrorist organizations to enable them to
carry out terrorist acts ( as defined in FATF Special
Recommendation)
• Unlike criminal organizations, the primary aim of
terrorist groups is non financial. Yet, as with all
organizations, terrorist groups require funds in order to
carry out their primary activities
• The simple fact—the need for funds—is key in fighting
terrorism. Follow the money, follow the financial trail.
This is the core objective of all measures that aim to
identify, trace, and curb terrorist financing

11. Nature of ML/FT Offences
Money laundering and terrorist financing are global crimes
Money launderers and financiers of terrorism internationalize their operations to
achieve various objectives
 To take advantage of the constraints of communication and cooperation
between regulators and law enforcement officers across national borders;
 To exploit regulatory and law enforcement weaknesses that characterize
certain jurisdictions; and
 To add layers to the transactions to make it difficult to follow the trail of the

12. Effects of ML/FT
• Affect efficiency and productivity- Money invested in less-productive
activities providing opportunities of avoiding detection.
• Destabilize economy- Rapid movement of large amounts of money in
and out of a country to obscure the audit trail greater
• Volatility of exchange rates- Unanticipated cross border asset transfers
• Undermine the function and integrity of the financial system- Use of
the financial system to advance criminal purposes
• Undermine liberalization of a country‘s economy and its integration
into the global economy
• Affect Government revenues- Criminals do not pay taxes
• Social and political dimensions- Suffering of the victims and overall
weakening of the social fabric and collective ethical standards.

13. International Efforts in
AML/CFT
• 1985- The United Nations- Started efforts with the recognition
that drug trafficking—and associated money laundering—were
truly international problems and could be addressed effectively
only on a multinational basis
• 1989 – Financial Action Taskforce (FATF)- Set up to ensure
global action to combat money laundering ( subsequently
terrorist financing also)
• 1995 - Egmont Group- Set up to stimulate international
cooperation and develop best Practices for exchange of
information amongst FIUs
• 1997- Asia/Pacific Group on money laundering (APG)- Set
up to create awareness and encourage adoption of AML
measures.

14. What is a Financial
Intelligence Unit
• FIUs are agencies created for the sole purpose of receiving and analyzing
information from financial institutions concerning suspicious or unusual
financial transactions, and then disclosing that information to competent
authorities. Their work is central to the fight against money laundering
and terrorist financing
• Need for FIUs arose for following reasons:
– Law enforcement agencies had limited access to relevant financial
information
– Need to engage the financial system in the efforts to combat laundering
– Need to report suspect financial transactions by financial institutions to
a central agency for assessing and processing reported transactions

15. Definition of an FIU
A central, national agency responsible for receiving, (and as permitted, requesting)
analysing and disseminating to the competent authorities, disclosures of
financial information:
(i) Concerning suspected proceeds of crime and potential financing of
terrorism, or
(ii) Required by national legislation or regulation,
in order to combat money laundering and terrorist financing.
- Definition formalised by Egmont Group

16. Anti- Money Laundering
Legislation in India
• The Prevention of Money Laundering Act, 2002 (PMLA) enacted in
2003 to prevent money laundering and to provide for confiscation of
property derived from, or involved in, money laundering
• PMLA and rules notified thereunder came into effect from 1st July, 2005
• As per Section 3 of PMLA, ―whosoever, directly or indirectly, attempts
to indulge or knowingly assists or knowingly is a party or is actually
involved in any process or activity connected with the proceeds of
crime and projecting it as untainted property shall be guilty of offence
of Money Laundering‖

17. Proceeds of Crime
• As per Section 2(1)(u) of PMLA, “proceeds
of crime” means any property derived or
obtained directly or indirectly, by any person
as a result of criminal activity relating to a
scheduled offence or the value of any such
property.
• As per Section 2(1)(y) of PMLA,
“Scheduled offence” means –
a) the offences specified under part A of the
Schedule, or
b) the offences specified under part B of the
Schedule, if the total value involved in such
offences is Rs.30 lakhs or more.

18. Scheduled offences
Following offences are specified under the two schedules:
Part A
(i) Certain offences under Sections 121 and 121A of the IPC, relating to waging
war against the State
(ii) Certain offences under the NDPS Act 1985 relating to drug trafficking
Part B
(i) Certain offences under the IPC relating to
murder, extortion, robbery, kidnapping for ransom, forgery and
counterfeiting currency notes
(ii) Certain offences under the Arms Act, 1959 relating to illegal
manufacture, trading and possession of fire arms
(iii) Certain offences under the Wild Life (Protection) Act, 1972 relating to
illegal trade in flora and fauna
(iv) Certain offences under the Immoral Traffic (Prevention )Act, 1956 relating
to prostitution
(v) Certain offences under the Prevention of Corruption Act, 1988 relating to
corruption by public servants

19. Punishment for Money
Laundering
• Rigorous imprisonment for not less than
three and upto seven (ten in case of
offences under NDPS Act, 1985 relating
to drug trafficking) years, and Fine upto
Rs. Five lakh
• Attachment/ Seizure and Confiscation of
property involved in Money Laundering
– Attachment/Seizure of property (proceeds of
crime) in possession of a person charged of
having committed a scheduled offence

20. Authorities for
enforcement of PMLA
• Financial Intelligence Unit-India:
For matters relating to obligations of Reporting Entities
– Financial Intelligence Unit – India (FIU-IND) was set by the Government India vide
O.M. dated 18th November 2004 to collect, analyse and disseminate actionable
suspicious information to intelligence/ enforcement agencies.
• Directorate of Enforcement:
For matters relating to investigation and prosecution of money
laundering offences

21. CFT Legislation
• 2004- Amendment to the Unlawful Activities ( Prevention) Act,1967 to
deal with terrorist activities
• Main Provisions-
– Terms like terrorist act, terrorist gang, terrorist organisation and proceeds of
terrorism defined to make coverage comprehensive
– Offences liable for Punishment-
• Terrorist activities like terrorist acts, raising funds for terrorist
acts, conspiracy, harbouring, holding proceeds of terrorism etc
• Association with and support to terrorist organisation,
• Raising or providing funds for terrorism
– Provisions for forfeiture of proceeds of terrorism
– Power to the Central Government to notify an organisation as Terrorist
Organisation
– Offences committed beyond India also liable for punishment

22. FIU-IND
• Financial Intelligence Unit – India (FIU-IND)
was set by the Government of India‘s O.M. dated
18th November 2004 to:
“coordinate and strengthen collection and sharing of
financial intelligence through an effective
national, regional and global network to combat money
laundering and related crimes”
• An officer oriented, technology intensive
organisation

23. Functions of FIU-IND
Collection of Information: Act as the central reception point for receiving Cash
Transaction Reports (CTRs) and Suspicious Transaction Reports (STRs) from the
banking companies, financial institutions and intermediaries of securities market.
Analysis of Data: Analyse received information to uncover patterns of transactions
suggesting suspicion of money laundering.
Information Sharing: Share information with regulatory agencies (RBI, SEBI
etc.), intelligence/enforcement agencies and foreign FIUs.
Relationship Management: Coordinate and strengthen collection and sharing of
financial intelligence through an effective national, regional and global network to
combat money laundering and related crimes.
Research and Analysis: Monitor and identify strategic key areas on money laundering
trends, typologies and developments.

24. Framework of FIU-IND
Reporting Agencies
Banking Company
Financial Institutions Regulatory Agencies
Intermediaries RBI
SEBI
Regulatory Agencies
IRDA
RBI
SEBI FIU-IND Enforcement Agencies
IRDA
IB
Enforcement Agencies RAW
REIC
IB
CBDT-DGIT/CCIT
RAW CBEC-DGDRI/DGCEI
REIC ED
CBDT-DGIT/CCIT EOW of Police
CBEC-DGDRI/DGCEI
EOW of CBI
ED
EOW of Police Foreign FIUs
EOW of CBI
Foreign FIUs - Government of India O.M. dated 18th November 2004

25. Website
(www.fiuindia.gov.in)

26. Obligations under PMLA
The PMLA 2002 and the Rules notified thereunder impose
obligation on
• banking companies
• financial institutions
• intermediaries of the securities market
to
• Appoint principal officer
• verify identity of clients
• maintain records
• furnish information
(Section 12 PMLA)

27. Banking Company under
PMLA
―Banking Company‖ under PMLA includes:
• All nationalized banks, private Indian banks and private
foreign banks.
• All co-operative banks viz. primary co-operative
banks, state co-operative banks and central (district
level) co-operative banks.
• State Bank of India and its associates and subsidiaries.
• Regional Rural Banks.
• Local Area Banks

28. Appointment of Principal
Officer
• A Principal Officer to be appointed by every intermediary to
comply with the provisions of PMLA.
• Name, designation and address of the Principal Officer to be
communicated to the Director (FIU).
(Rule 7 & 8)

29. Verification of Identity of
Clients
• Verify and maintain the record of:
• Identity of client
• Address - current and permanent
• Nature of business
• Financial Status
– At the time of opening an account or
executing any transaction
• Maintain records of the identity of clients for a
period of ten years from the date of cessation of
the transactions with the client.
• Review of Risk profile of customer to be
carried periodically

30. Transactions to be
reported
 Cash transactions of the value of more than Rs.10 lakh or
its equivalent in foreign currency,
 Integrally connected cash transactions adding to Rs. 10
lakh or its equivalent in foreign currency in a month,
 Cash transactions where forged or counterfeit currency
or bank notes have been used or where forgery of a
valuable security has taken place,
 Suspicious transactions whether or not made in cash.
(Rule 3)

31. Reports to be furnished
– Reports of cash, suspicious and transactions involving
forgery etc. to be furnished to FIU-IND to be furnished in
formats prescribed
– Both manual and electronic formats prescribed
– Time limit-
• by the 15th day of the succeeding month in respect of
cash transactions
• within 7 working days of coming to conclusion in
respect of suspicious transactions

32. Powers of Director, FIU -
IND
• Power to call for records maintained under Section 12 of
PMLA
• Power to make or cause to make any enquiry
• Power to levy fine (not less than Rs.10,000 and may extend
to Rs.1 lakh for each failure) on a banking company or FI
which fails to comply with the provisions of Section 12.
• Power to recover fine as Tax Recovery Officer under the
Income Tax Act.
(Section 13 & 69 of PMLA)

33. Expectations from the
banks
• Senior officers to be appointed Principal Officers
• KYC norms to be followed uniformly
• CTRs to be submitted in electronic format
regularly, where applicable
• Capacity of the financial institution to habitually detect
and report suspicious transactions
• Increase awareness and training of staff – new roles and
responsibilities
• Evaluate and ensure adherence to AML/KYC policies

34. Suspicious Transactions
Suspicious transaction means a transaction whether or
not made in cash which, to a person acting in good faith
–
(a) gives rise to a reasonable ground of suspicion that it may
involve the proceeds of crime; or
(b) appears to be made in circumstances of unusual or unjustified
complexity; or
(c) appears to have no economic rationale or bonafide purpose; or
(d) gives rise to a reasonable ground of suspicion that it may
involve financing of the activities relating to terrorism.

35. Definition of Transaction
• ‗Transaction‘ includes
deposit, withdrawal, exchange or transfer of
funds in whatever currency, whether in cash or by
cheque, payment order or other instruments or by
electronic or other non-physical means.

36. Submission of STRs to FIU-
IND
• Suspicious transactions whether or not made in
cash
• No threshold limit for STRs
• To be reported within 7 days of confirmation of suspicion

37. Indicative parameters:
• General Indicators
• Knowledge indicators
• Identity indicators
• Transactions indicators
• Activity in account
• Account Indicators

38. General Indicators
• Customer indirectly states of his/her involvement in criminal
activities.
• Customer having relation with many F.I. in the same locality for
no reason.
• Customer is regularly kept a watch on.
• Customer not aware/vaguely aware about the amount of funds in
account.
• Inconsistencies appear in the Customers‘ presentation of the
transaction.
• Customer shows extra curiosity about internal checks &
balances, reporting system, guidelines on STRs.
• Customer getting close with staff.
• Customer offers bribe or other incentives for irregular activity.
• Customer over cautious in explaining genuineness of the
transaction.

39. Knowledge indicators
• Customer tries to convince staff not to complete the formalities
• Customer thoroughly aware of legal position on suspicious
transaction reporting.
• Customer seems very conversant with money laundering or
terrorist activity financing issues.
• Customer is quick to volunteer that funds are clean or not being
laundered.

40. Identity indicators
• Customer doubtful or vague information given.
• Customer gives false identification or identification that
appears to be counterfeited, altered or inaccurate.
• Instead of his own some other identification is submitted by
Customer.
• All Identity documents presented are not verifiable i.e.
Foreign documents etc.
• All identification documents appear to be recently acquired.
• Identity matches with known ‗hot/watch lists‘

41. Transactions indicators
• Frequent cash transactions in large amounts which is not
normally done by the customer.
• Small denominations frequently changed for large ones.
• Dirty/smelly notes deposited.
• Customer consistently makes cash transactions that are just
under the reporting threshold amount in an apparent attempt to
avoid the reporting threshold .
• Frequent purchase of travellers cheques, DDs, etc. with cash
when this appears to be outside of normal activity for the

42. Activity in account
• Account activity inconsistent with nature of business.
• Transaction involves NGOs or charitable organization for
which there appears to be no logical economic purpose or
where there appears to be no link between the stated activity
of the NGO or charitable organization and the other parties in
the transaction.
• Transaction is unnecessarily complex.

43. Accounts Indicators
• A long distance customer opening an account/s.
• Account/s opened with names closer to established industrial
houses/groups.
• Intra bank transfer of funds - accumulated into one account
for foreign remittance.
• Opening of several accounts simultaneously, some of which
remain dormant for long periods.
• A third party appears to be using the account of customer.
• Customer frequently using different locations other than the
place of account opening to deposit funds.

44. Examples of Suspicious
Transactions
• False Identification Documents
– Welcome pack returned
– No person found/Address found to be false
• Identity Matching- Match with watch-lists
– Name and DOB of account holder matched with INTERPOL most
wanted list
• Transactions inconsistent with customers profile (business)
– Number of transactions in a period
– Value of transaction(s) (Retired employee)
– Turnover in Account

45. Examples of Suspicious
Transactions
• Multiple cash deposits at various cities all over India
– Nigerian student
• Outward remittance of cash deposits
– 7 related entities deposited cash in their accounts
– Claimed it to be sale proceeds of mobile phones
– Entire amount remitted outwards for claimed import
• Non Financial Indicators
– Usage of Lockers

46. Steps in submission of
STR
• Identify suspicious transaction or an activity
• Identify key players & related entities in the suspicious
transaction or activity
– Identify factual information available at your end
– Express the suspicion on transaction or activity correctly
under the grounds of suspicion
• Fill up the STR form carefully
• Report within 7 days of confirmation of suspicion

47. Reasons for Suspicion
• Identity of client
– False identification documents
– Identification documents which could not be verified within reasonable time
– Accounts opened with names very close to other established business entities
• Background of client
– Suspicious background or links with known criminals
• Multiple accounts
– Large number of accounts having a common account holder, introducer or authorized signatory with no rationale
– Unexplained transfers between multiple accounts with no rationale
• Activity in accounts
– Unusual activity compared with past transactions
– Sudden activity in dormant accounts
– Activity inconsistent with what would be expected from declared business
• Nature of transactions
– Unusual or unjustified complexity
– No economic rationale or bonafide purpose
– Frequent purchases of drafts or other negotiable instruments with cash
– Nature of transactions inconsistent with what would be expected from declared business
• Value of transactions
– Value just under the reporting threshold amount in an apparent attempt to avoid reporting
– Value inconsistent with the client‘s apparent financial standing

48. Cases on AML/CFT

49. Customer profile mismatch
An individual opened a account for low value transaction. After few days
from opening of accounts huge cash where deposited and the cheques
where received for withdrawal on next day for the whole amount. On
inquiring with customer he was not able to provide source of funds and
purpose of transaction. On the next day he brought a consultant who gave
the details of the transaction as the money was give by some of his friends
to purchase the shares.
Key Message:
*Mismatch in customer profile submitted.
*Sudden spurt in transactions by depositing huge cash and withdrawal by
cheques.
*Customer not able to give a proper explanation for the source of funds
*Utilisation of account by other individual

50. Loan case
• JK is one of our customer. He runs a proprietary firm JK
Enterprises. This firm is in transport business, hiring of cars and
small trucks. He had taken loans from your bank for purchase of
some cars and trucks. Within the last two months, he had pre-
closed all the loan accounts, one by one.
• Key Message:
– Fast payment of pre closure
– How he is closed the loan (cash, cheque)
– If loan is closed by cheque, has the loan been taken over by other banks or
financing institution

51. Stock Market

52. Thank You
For any queries
Mail us on
girish_iyer@idbi.co.in